Tronc Scheme
Hospitality Business Owners – 'Tips' for you and your staff
As we approach the busiest time of the year, it's an apt opportunity to remind those in charge of hospitality businesses; whether a restaurant, café or hotel, that the processing of tips can make a big difference to both your staff and your business.
The cost of getting it right
Did you know? A tax efficient means of processing tips can save the recipient 12% of tips, gratuities and service charges received and the business 13.8%, in national insurance charges.
At best, the inefficient processing of tips will only be tax inefficient. At worst, the incorrect processing of tips could lead to an HMRC enquiry and subsequently give rise to penalties and fines – not to mention the cost of professional advisors to assist with any such dispute. For businesses in 2018 where operating costs are continuously increasing, this highlights the importance of processing it correctly.
Time to consider a Tronc scheme?
Quite simply, as a business tasked with processing staff tips you need to be operating a Tronc scheme. This is a separate PAYE scheme which is set up specifically to process just tips, gratuities and service charges.
Pooling and sharing out cash tips, converting tips paid on card to cash from the till and inadvertently creating contractual arrangements for tips are all areas of risk. Some businesses continue to process these via their main payroll which means the employer is paying an additional 13.8% in employer NIC. This also means the employees are losing out on 12% due to employee NIC being deducted from the tips when only income tax should be deducted from these amounts.
Are you processing tips, gratuities and service charges the correct way?
Quite typically, what you should have is the restaurant/hotel manager, head waiter or a third party appointed as the Tronc Master who will administer the processing of the tips, gratuities and service charges among the staff. This is operated through a separate PAYE scheme and then both Employer's and Employee's NIC can be avoided.
As a business owner you can pass down any percentage of the tips to the tronc manager who will then split accordingly between the staff.
The rules of a Tronc scheme are complicated and continually changing and If you are not following HMRC's legislation correctly and if HMRC do investigate you could be heavily fined.
How Sopher + Co can help you and your business
At Sopher + Co, we design, implement and run Tronc schemes for our clients that adhere to HMRC guidelines. Our advice is simple and designed to protect you from enquiries, tax demands and employment tribunal claims in respect of the distribution of tips to staff.
If you need advice or guidance please contact Stav Stavrou , Payroll to find out how we can help with your requirements.